Interest in Amarin (NASDAQ: AMRN) mounting ahead of FDA Decision on AMR101; Takeover Speculation

With the FDA action date (PDUFA date) set for July 26th, many investors are focusing on the potential approval of Amarin’s (NASDAQ: AMRN) drug to treat high triglycerides, AMR101. Implied volatility in AMRN options is rising, and is expected to increase as the FDA decision nears. In Phase III trials, AMR101, a form of fish oil, showed a statistically significant benefit for lowering triglycerides vs. placebo, when the drug was used on its own, as well as in combination with a statin to lower cholesterol. Given that AstraZeneca (NYSE: AZN) continues to seek acquisitions of complementary products, and is essentially the only major drug company left promoting a branded statin (Crestor), many are speculating that if AMR101 is approved, AstraZeneca will buy AMRN. An FDA approval of AMR101 would certainly lower the risk profile of Amarin, and therefore, investors are likely to build in a take-out premium in AMRN post-approval.

Analysts expect sales for AMR101 to grow to $2 billion or more when the drug is used in combination with a statin for a condition called ‘mixed dyslipidemia’. Recently, Bristol-Myers (NYSE: BMY) paid roughly $7 billion for Amylin Pharmaceuticals (NASDAQ: AMLN), a company with a marketed drug franchise expected to also reach $2 billion in sales.  As a result, investors speculate that AMRN could be sold for a multiple of its current $2 billion valuation. The Street believes AMRN could be taken out in the $25-$30 range. AstraZeneca may walk away with a sweet deal if it can pick the company up in this range, as the market for AMR101 could grow even larger with the right marketing muscle.

Expectations for a favorable decision later this month are muted by company comments that the FDA may take more time with the application, hence an approval is expected in the ‘second half of 2012’. This means that a timely approval on June 26th leaves upside potential on the table, and the likely take-out speculation that could follow may lead shares higher. We like the risk/reward on AMRN into the PDUFA date. The company recently received notices of allowance from the U.S. Patent Office on patents protecting the drug’s formulation through at least 2030. As a result, investors have become more confident that AMR101 will become a commercial product with significant market potential. Thus, we believe the downside in AMRN stock is limited, even in the event that the FDA takes more time on AMR101’s new drug application and approves it later in the year, as the company has suggested.